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Thinking of buying trinkets in Beijing?Don’t forget to bring your Bitcoins.China, in the last few weeks, has gone crazy over the cryptocurrency, which is now accepted by Chinese online retailers, a Shanghai real estate developer,and traders in Tiananmen Square.Perhaps you want a latte in Zhongguancun?Yes, you can use Bitcoins to pay for caffeine in Beijing’s high-tech zone.

There’s no mystery why Chinese vendors just love to take the digital currency.China continues to hold the record for the highest price paid for a Bitcoin, and prices continue to climb. On Tuesday, the price of a Bitcoin exceeded 7,000 yuan (about $1,120) on the BTC China platform.

And the Chinese are paying premiums for their Bitcoins.On Tuesday, when the price broke the 7,000-yuan mark, Bitcoins were trading at about $900 on the closely watched Mt. Gox exchange in Japan.

So what is going on?Two favorable mentions in state media—broadcaster China Central Television and the Communist Party’s People’s Daily—signaled that Beijing is in favor of the use of the currency.Moreover, on October 15 Jiasule, a firewall service for websites, announced it would accept Bitcoins.A “source close to Baidu,” speaking to the Wall Street Journal’s Market Watch site, says the decision was made by its partner, Knownsec Information Technology Co.There is no reason to doubt the report, but it is inconceivable that Baidu would permit the acceptance of Bitcoins without first clearing the matter with Beijing authorities.

And if there were any doubts that the central government favored Bitcoin, Yi Gang on Wednesday erased them.The deputy governor of the People’s , the central bank, said although Beijing would not recognize Bitcoin as a medium of exchange soon, people were free to participate in the Bitcoin market.

Yi’s words were significant because Chinese law actually forbids acquiring and using Bitcoins.The Ministry of Commerce and Ministry of Culture in 2009 jointly issued rules that outlawed the use of virtual currency in the real economy, specifically the exchange of such currency for goods and services, or the exchange of it for renminbi. The ban was imposed in response to the widespread acceptance of QQ, the virtual currency of Tencent, the Chinese social media giant.QQ, incredibly, had grown to about 13% of the Chinese cash economy.People traded QQ in public areas, and it was accepted in shops. Tencent itself brought QQ back under control “overnight” because Beijing ordered it to do so. The Bitcoin algorithm was released online just months after Tencent was forced to rein in its virtual currency.

It is not so easy for Beijing to control Bitcoin because of its decentralized cryptography, and Chinese citizens can engage in a lot of mischief with it.For one thing, they can, as a practical matter, use it in currency transactions that are currently out-of-bounds, like smuggling cash offshore or speculating against the renminbi.As is often noted, Bitcoin is “a currency that is explicitly designed to evade government control.”Bitcoin trading can also “short-circuit” currency reforms and so make such changes inevitable, a prospect that must worry even the progressives at the central bank.

There are, however, a number of reasons why Beijing undoubtedly likes the new currency.For one thing, digital money can undermine the dollar’s status as the world’s reserve currency. Bitcoin is on track to becoming the world’s first trillion dollar non-fiat form of money.

Moreover, Chinese officialdom is probably confident that it can gain some control over Bitcoin.China is “a major locus of Bitcoin nodes,” where computers serve as hubs for exchange of the currency. There are almost 20 trading platforms for the currency in China.In fact, BTC China is the world’s largest Bitcoin platform, and, according to data tracker Bitcoinity, China accounts for more than half of the daily turnover of the virtual currency.Chinese demand, analysts say, is increasingly driving Bitcoin prices. In fact, changes in the yuan-Bitcoin exchange rate have become a leading indicator of the dollar-Bitcoin rate.

Although Bitcoin is said to respect no boundaries, Beijing will find some way—probably through its regulation of the exchanges—to make sure that Chinese citizens do not do massive end-runs around their country’s laws. We should not be surprised that Bobby Lee, the CEO of BTC China, told CNBC that he is in favor of regulation of Bitcoin in general and the exchanges in particular.

Finally, Bitcoin enables Beijing to perpetrate some mischief of its own. Already, one Iranian store, back-ally Persian Shoes, evades financial sanctions on Iran by accepting Bitcoins.Bitcoin payments would also be perfect for Beijing to surreptitiously undercut American financial sanctions on, say, payments made through Iranian financial institutions.Bitcoin gives Beijing one more avenue to support regimes and groups that the rest of the world shuns.